How Not to Defend the Revolution: Mark Weisbrot and the Misinterpretation of Venezuela's Evidence

By Francisco Rodríguez

01.04.08 | Wesleyan University Assistant Professor of Economics and Latin American Studies, Dr. Francisco Rodríguez, was kind enough to send his reply to Chavez's favorite 'economy-expert' Mark Weisbrot, an economist, we've been told, whose grasp of economic matters is deficient, to say the least. However this is not the first time, nor will it be the last, when it's proven, beyond doubt, that Chavez's multi billion dollar propaganda campaign just can not get him sycophants clever enough to spin reality to acceptable levels.

Abstract: Mark Weisbrot (2008) has claimed that under the Chávez administration in Venezuela the share of pro-poor spending has increased, inequality has declined, poverty has fallen rapidly, and there has been a massive reduction in illiteracy. All of these conclusions are based on the use of heavily slanted data and on the misinterpretation of the existing empirical evidence. Weisbrot uses estimates of social spending that are upward biased by the inclusion of large infrastructure projects, debt refinancing, and even military spending; his inequality data is distorted by the inexplicable exclusion of households that received no income; his econometric estimates on illiteracy actually show the exact opposite of what he is arguing for. Weisbrot confuses basic economic concepts and offers a bizarre interpretation of events leading up to the 2002 currency crisis. Once one corrects for Weisbrot’s biases, the evidence paints a consistent image of an administration that has not effectively prioritized the well-being of the Venezuelan poor.

In a paper published in the March/April issue of Foreign Affairs (Rodríguez, 2008), I
argued that there is little evidence that the government of Hugo Chávez has given priority
to the well-being of Venezuela’s poor. In recent days Mark Weisbrot (2008) published a
rebuttal on the website of the Center for Economic Policy Research - a Washington thinktank
that he co-directs - arguing that some of my conclusions were “altogether wrong,
and others grossly exaggerated and/or misleading.” In particular, Weisbrot argued that I
am mistaken in asserting that the share of pro-poor spending has not increased under
Chávez, that inequality had risen, that the government had not taught 1.5 million persons
how to read and write, that the rate of poverty reduction has been slower than normal
given Venezuela’s economic growth, that other health and human development indicators
show a deterioration in the living standards of the poor, and that the 2002 recession was
not caused by the country’s political crisis. On each of these, Weisbrot argues the exact
for the exact opposite conclusions to those that I have drawn.

I welcome the opportunity to have an in-depth discussion of the evidence regarding
the well-being of the Venezuelan poor under Chávez. Indeed, many of the points raised
in Weisbrot’s paper as well as in this response have been discussed previously in
academic fora. The broad dissemination of both papers thus offers an extraordinary
opportunity to involve a broader group of policymakers and academics in the discussion
and analysis of Venezuela’s social and economic policies.

As I will show, Weisbrot’s critiques are generally invalid, relying on erroneous
reading of the evidence or use of severely biased indicators that do not accurately reflect
the evolution of the Venezuelan economy or the well-being of the poor. For example, I
will show that Weisbrot’s estimates of social spending are upward biased by the inclusion
of large infrastructure projects, debt refinancing, and even military spending in what he
contends is pro-poor spending, that his inequality data is distorted by the inexplicable
exclusion of households that received no income, and that his econometric estimates on
the effect of the Robinson program on illiteracy actually show the exact opposite of what
he is arguing for. Weisbrot’s other criticisms are based on a misinterpretation of the
concept of elasticity and on the questionable interpretation of existing health indicators
and of the evidence leading to the 2002 recession.

Before delving into these differences, I would like to emphasize one basic point of
agreement with Weisbrot. Official Venezuelan statistics are far from the ideal of what
we would need in order to properly evaluate the performance of the Chávez
administration. Well-designed impact assessments of the government’s social programs
are either inexistent or have not been made public by the administration. The raw data
and methodological descriptions necessary to replicate official calculations are only made
available with severe lags, and often not at all. Many series that are vital to the analysis of
the government’s policies are not public, and it is not uncommon for different entities to
produce contradictory numbers. These weaknesses cause an inherent ambiguity in the
interpretation of the evidence regarding the Chávez administration, a fact that helps to
underline the usefulness of a serious academic debate on how to read the data.

In the rest of this note, I will take each one of Weisbrot’s criticisms and show why
they are invalid. In most cases, I will show that he has misinterpreted the evidence or
used severely biased indicators, and that when we correct for these biases we come to
conclusions which are opposite to what he contends. In a number of issues, our
disagreements reflect alternative possible interpretations of ambiguous data, and it is
useful to lay out the sources of these differences in interpretation for readers to make up
their own minds. All in all, I will argue, the image that emerges from a close reading of
the evidence is still one in which there is little evidence that the Chávez administration
has prioritized or produced favorable effects on the well-being of the poor above and
beyond what we could have expected any other government to do.

1. Has the share of pro-poor spending gone up?

In my article, I argued that government spending figures show no evidence that the
Chávez administration is giving greater priority to the categories of spending that benefit
the poor. As an example, I cited the fact that the average share of the central
government’s budget allocated to health, education, and housing during Chávez’s first
years in office was 25.12 percent, essentially identical to the share in the previous eightyear
period, 25.08 percent. Weisbrot has countered with three pieces of evidence: that
the share of social spending – a broader category - in total spending has increased
markedly since 1998, that the absolute amount of resources received by the poor has also
increased significantly, and that my calculations exclude the contributions by PDVSA to
social projects, which he claims summed to $13.3 billion, or 7.3 percent of GDP, in 2006.

Before looking at the data in detail, it is relevant to think a bit about what we should
be looking for. Let us start from the following fact: the Venezuelan state is undeniably
much richer today than it was nine years ago, to a great extent (if not completely) due to
the ten-fold increase in oil prices that has occurred since 1999. As a result, the
Venezuelan government has substantially increased its spending levels, and therefore is
indeed spending more in real terms on just about any type of expenditures. This means
that all categories of spending can be expected to have increased in real terms since
Chávez reached office, be they social programs, infrastructure projects, military
spending, or growth of the public bureaucracy.

But the absolute level of pro-poor spending is not what should concern us if we are
interested in evaluating a government’s priorities. Precisely because the government has
experienced such a huge windfall, we want to study how it has allocated it among
different possible objectives. To use an intuitive metaphor, if you want to know how
much your rich uncle cared about you, you’d like to compare how much of his
inheritance he left you with what he gave everyone else. If all of your siblings got a
million dollars in his will, while you received the old man’s poodle to take care of, it
would be hard to argue that you were his favorite nephew. Thus, of all the pieces of
evidence thrown about by Weisbrot, the ones that we should study closely are those that
reflect the relative distribution of government spending among different categories of
spending.